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Financial reform bill contains big changes

1 OVERSIGHT A 10-member council of regulators led by the Treasury secretary would monitor threats to the financial system. It would decide which companies were so big or interconnected that their failures could upend the financial system. If such a company teetered, the government could liquidate it. The costs of taking such a company down would be borne by its industry peers.

2 CONSUMER PROTECTION A new independent office would oversee financial products and services such as mortgages, credit cards and short-term loans. The office would be housed in the Federal Reserve. Auto dealers, pawnbrokers and others would be exempt from the bureau's enforcement. For community banks, the new rules would be enforced by existing regulators.

3 FEDERAL RESERVE The Federal Reserve would lead the oversight of big, interconnected companies whose failures could threaten the system. The Fed's relationships with banks would face more scrutiny from the Government Accountability Office, Congress' investigative arm. The Fed also would have to set lower limits on the fees banks charge merchants who accept debit cards.

4 CAPITAL CUSHIONS Big banks would have to reserve as much money as small banks do to protect against future losses. But big banks would have to replace hybrid forms of capital called trust preferred securities with common stock or other securities. Banks with under $15 billion in assets wouldn't have to replace those securities.

5 DERIVATIVES These financial instruments, whose values change based on the price of some underlying investment, were used for speculation, fueling the financial crisis. The new law would force many of those trades onto more transparent exchanges. Banks will continue trading derivatives related to interest rates, foreign exchanges, gold and silver. Riskier derivative deals would run through affiliated companies with segregated finances.

6BANK RESTRICTIONS Companies that own commercial banks could no longer make speculative bets for their own profits. Banks will be allowed to invest up to 3 percent of their capital in private equity and hedge funds.

7 EXECUTIVE PAY Shareholders would vote on executive pay. But the votes wouldn't be binding. The Fed would oversee executive compensation to make sure it does not encourage excessive risk-taking.

8 CREDIT RATING AGENCIES Those that give recklessly bad advice could be legally liable for investor losses. They would have to register with the Securities and Exchange Commission. Regulators would study the conflict of interest at the heart of the rating system.

9 MORTGAGE LOANS Lenders would have to make sure mortgage borrowers could afford to repay. Lenders would have to disclose the highest payment borrowers could face on their adjustable-rate mortgages. Mortgage brokers could no longer receive bonuses for pushing people into high-cost loans.


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